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New Limit on Deductible Compensation Under Internal Revenue Code (Code) Section 162(m). The existing $1,000,000 limit on the deductibility of compensation of certain executives of public companies is modified for certain financial institutions participating in TARP by (i) reducing the limit to $500,000, (ii) applying the reduced limit to forms of compensation not previously subject to Code section 162(m) (i.e., performance-based compensation, commissions and compensation paid pursuant to certain preexisting contracts) and (iii) extending the provision to nonpublicly traded financial institutions. The deductibility of deferred compensation earned while these provisions are in effect will be limited to the remainder, if any, of the $500,000 limit for the employee for the year in which the deferred compensation was earned.

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Modification of the Code Section 280G Golden Parachute Tax Regime. Change in control payments made to any executive subject to the new Code section 162(m) limit on deductible compensation for participants in TARP described above will be subject to the special tax regime for golden parachute payments. The Stabilization Act also makes other modifications that generally expand the scope of the golden parachute tax regime, including removal of the exception for reasonable compensation and certain shareholder-approved payments.

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Fannie Mae and Freddie Mac Preferred Stock. Gain or loss realized by certain financial institutions from the sale or exchange of Fannie Mae or Freddie Mac preferred stock either held on September 6, 2008 or sold or exchanged between January 1, 2008 and September 6, 2008 will be treated as ordinary income or loss, rather than capital gain or loss. In addition, the Stabilization Act allows the Treasury to issue regulations allowing similar treatment for gain or loss realized from a sale or exchange of preferred stock not held on September 6, 2008, but sold after that date, where the financial institution's basis in the preferred stock is the same as the basis of a person which held the stock on September 6, 2008.

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Exclusion of Cancellation of Indebtedness Income. The exclusion of up to $2 million of cancellation of indebtedness income related to the forgiveness of certain mortgage debt on a principal residence is extended to include mortgage debt forgiven through 2012 (from 2010).

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Increase of AMT Refundable Credit Amount for Individuals with Long-Term Unused Credits for Prior Minimum Tax Liability. The Extenders Act changes the way in which the refundable portion of the "long-term unused minimum tax credit" for a particular tax year is computed, and eliminates the previously applicable phaseout of the credit based on adjusted gross income, potentially increasing the credit available in that year. Individuals with long-term unused minimum tax credits in a tax year ending on or before December 31, 2012 now may receive a refundable credit equal to the greater of (i) 50 percent of the long-term unused minimum tax credit or (ii) the amount, if any, of the long-term unused minimum tax credit determined for the preceding tax year.

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Specific Relief for AMT Attributable to an Incentive Stock Option Exercise. The Extenders Act eliminates any otherwise outstanding liability for tax, penalties and interest attributable to an AMT liability arising from the exercise of any incentive stock option before 2008. In addition, the amount of a taxpayer's long-term unused minimum tax credit described above that is allowed as a refund in each of 2008 and 2009 is increased by 50 percent of any interest or penalty paid by a taxpayer that would have been abated by the Extenders Act if it had not already been paid.

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One-Year Extension of the AMT Patch. For 2008, the Extenders Act increases the amount of income otherwise exempt from the AMT to $46,200 for unmarried individuals who were not surviving spouses, $69,950 for married couples filing jointly and surviving spouses, and $33,125 for married individuals filing separately.

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Extension of AMT Relief for Nonrefundable Personal Credits. The ability to use certain nonrefundable tax credits (e.g., the dependent care credit, the credit for the elderly and disabled, the adoption credit, the child tax credit, the HOPE Scholarship and Lifetime Learning credit, the credit for savers, the credit for certain nonbusiness energy property, and the credit for residential energy-efficient property) to offset a taxpayer's AMT (in addition to their regular tax liability) is extended through 2008.

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Deduction for State and Local Taxes. The election for individuals to deduct state and local sales taxes in lieu of state and local income taxes is extended through 2009.

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Deduction of Qualified Tuition-Related Expenses. The above-the-line deduction for certain higher education expenses is extended through 2009.

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Deduction for Certain Expenses of Elementary and Secondary School Teachers. The above-the-line deduction for certain teacher classroom expenses is extended through 2009.

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Additional Standard Deduction for Real Property Taxes for Nonitemizers. The recently enacted increase in the standard deduction related to property taxes is extended through 2009.

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Tax-Free Distributions from IRAs for Charitable Purposes. The allowance of tax-free distribution from an IRA for certain charitable purposes is extended through 2009.

Depreciation and Expensing Provisions

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Fifteen-Year Straight Line Depreciation for Qualified Leasehold Improvements and Qualified Restaurant Improvements. The 15-year recovery period for qualified leasehold improvement property and qualified restaurant property is modified and extended to include qualified property placed in service through 2009.

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Accelerated Depreciation for Farming Machinery and Equipment. The depreciation period for certain new farming machinery and equipment placed in service during 2009 is shortened to five years.

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Shortened Depreciation Period for Motorsports Entertainment Complexes. The shortened seven-year depreciation period for motorsports entertainment complexes is extended through 2009.

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Election to Expense Qualified Environmental Remediation Expenditures. The election to deduct rather than capitalize certain environmental remediation expenditures is extended through 2009.

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Election to Expense Advanced Mine Safety Equipment. The election to deduct 50 percent of the cost of qualified advanced mine safety equipment property is extended through 2009.

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Shortened Depreciation Recovery Periods for Indian Business Property on Indian Reservations. The shortened depreciation recovery periods for qualified Indian reservation property are extended through 2009.

Tax Credits

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Certain Research Credits. In general, the research and experimentation credit is retroactively extended to include 2007 through 2009. The election to use the alternative incremental credit is repealed for taxable years beginning after 2008. The alternative simplified credit rate is increased from 12 to 14 percent for tax years ending after 2008. The computation of the research credit is modified for a tax year in which the credit terminates during the year.

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New Markets Tax Credit. The new markets tax credit is extended through 2009.

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Railroad Track Maintenance Credit. The credit for qualified railroad track maintenance expenditures is extended through 2009. The credit also is modified to be available to offset AMT liability.

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Qualified Zone Academy Bonds. The credit for holders of qualified zone academy bonds is modified and extended through 2009.

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Mine Rescue Team Training Credit. The mine rescue team training credit is extended through 2009.

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Indian Employment Credit. The credit for payment of qualified wages and insurance costs to a qualified Indian employee is extended through 2009.

Provisions Affecting Charitable Contributions and Exempt Organizations

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Qualified Computer Contribution Rules for C Corporations. The enhanced deduction for qualified computer contributions by C corporations is extended through 2009.

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Charitable Deductions for Contributions of Food Inventory. An enhanced above-basis deduction for contributions of wholesome food is extended through 2009. This above-basis deduction also is made available to qualified farmers or ranchers for contributions made in 2008.

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Enhanced Charitable Deduction for Contributions of Book Inventory. The enhanced above-basis deduction for corporate contributions of book inventory to certain public schools is extended through 2009.

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Tax Treatment of Certain Payments to Controlling Exempt Organizations. The exclusion from the calculation of unrelated business taxable income of certain payments made pursuant to a binding written contract in effect on August 17, 2006 (or renewal of such a contract on substantially similar terms) is extended through 2009.

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Shareholder Basis Rule for S Corporation's Charitable Contribution of Property. The special rule for computing the reduction of a shareholder's S corporation stock basis by reason of a charitable contribution made by the S corporation is extended through 2010.

Provisions Affecting Controlled Foreign Corporations

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Subpart F Exception for Certain Active Financing Income. The exclusion of certain active financing income from the definition of Subpart F income is extended through 2009.

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Look-Through Rule for Related Controlled Foreign Corporations. The look-through rule pursuant to which certain dividends, interest, rents and royalties received by a controlled foreign corporation (CFC) from a related CFC is not treated as Subpart F income is extended through 2009.

Disaster Relief and Economic Development Provisions

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Work Opportunity Tax Credit for Hurricane Katrina Employees. The work opportunity tax credit available to employers for qualified first-year wages paid to employees affected by Hurricane Katrina is extended through August 28, 2009.

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Rehabilitation Credit for Structures in the Gulf Opportunity Zone. The increased rehabilitation credit for structures in the Gulf Opportunity Zone is extended to qualified rehabilitation expenditures paid or incurred through 2009.

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Special Incentives for the District of Columbia. Special incentives available with respect to the District of Columbia are extended through 2009.

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Disaster Relief. The Extenders Act contains tax-related relief for victims of the 2008 Midwest tornadoes and floods, Hurricane Ike, and victims in other federally
declared disaster areas.

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Treatment of Certain Regulated Investment Company (RIC) Dividends. The provision allowing a RIC to designate dividends paid from short-term capital gain and certain interest income as "short-term capital gain dividends" and "interest-related dividends," respectively, is extended through 2009. Dividends so designated generally are neither taxable nor subject to withholding with respect to nonresident aliens or foreign corporations.

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RIC Stock Included in Nonresident Alien's Taxable Estate. The look-through rule that excludes a portion of RIC stock owned by a nonresident alien from federal estate tax is extended through 2009.

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Qualified Investment Entities. The treatment of RIC stock that would otherwise be characterized as a "United States real property interest" (USRPI) and subject to FIRTPA as a "qualified investment entity" is extended through 2009. Gain from the sale of stock so treated generally is neither taxable nor subject to withholding with respect to nonresident aliens or foreign corporations. In addition, special rules apply to distributions to nonresident aliens or foreign corporations attributable to a qualified investment entity's sale or exchange of a USRPI.

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Broker Reporting. Brokers otherwise required to make an information return with respect to gross proceeds of a sale of certain securities acquired after 2010 must include the customer's adjusted basis and specify whether any gain or loss is long-term or short-term. In addition, the deadline for furnishing certain statements to customers is extended from January 31 to February 15.

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County Payments. The Secure Rural Schools and Community Development Act of 2000, which provides payments to rural counties that relied on federal timber payments to fund county services, is reauthorized through fiscal year 2011 with a revised funding formula. Under this new formula approved, Oregon will receive the largest share of these payments (about $254 million), followed by California (about $63 million), Washington (about $43 million), Idaho (about $43 million) and Montana (about $32 million).

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No Excise Tax on Certain Arrows. Wooden arrows designed for use by children are not subject to the otherwise applicable manufacturer's excise tax.

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FUTA Surtax. The 0.2 percent FUTA surtax is extended through 2009.

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Tax Return Preparer Penalties. The standard for avoiding tax return preparer penalties for most understatements of liability is reduced from "more likely than not" to "substantial authority." The "more likely than not" standard is retained for tax shelters and reportable transactions.

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Mental Health Parity Requirements under ERISA and PHSA Made Permanent. The parity requirements under ERISA and PHSA for mental health benefits and substance use disorder benefits are made permanent.

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Foreign Deferred Compensation. Compensation deferred under nonqualified deferred compensation plans of certain foreign corporations and tax-indifferent partnerships is taxable to the service provider immediately when the compensation is no longer subject to a substantial risk of forfeiture, regardless of whether the service provider has a current right to receive the amount. If any amount is not included in income at that time because the amount is not determinable, interest and penalties (in addition to tax) are imposed once the amount becomes determinable. This provision was directed at certain offshore entities used to avoid current U.S. tax on payments to managers and other service providers.